Govt rejects Vedanta mining plan on green worries

Govt rejects Vedanta mining plan on green worries

New Delhi: New Delhi on Tuesday rejected a plan by India-focused mining group Vedanta Resources Plc to mine bauxite in an eastern state, a blow to the company already facing hurdles to a planned $9.6 billion energy deal in the country.

London-based Vedanta said last week it had agreed to buy a majority stake in Cairn India from its UK-based parent Cairn Energy, although the country’s trade minister said on Tuesday that state-run Oil and Natural Gas Corp should have a say in the deal.

The environment ministry’s decision on Vedanta’s bauxite project pertains to a mining site in eastern Orissa state where Vedanta runs an alumina refinery on bauxite imported from elsewhere in India which keeps the firm’s operating costs high. Vedanta’s project in Orissa is valued at about Rs450 billion ($9.6 billion).

Vedanta is already facing regulatory hurdles in its bid for control of Cairn India, which would give billionaire Anil Agarwal’s group a slice of India’s oil reserves and exposure to surging energy demand in the country.

Late on Monday, an oil ministry source said all options were open for Indian state energy firms to make a counter bid.

A banking source familiar with the matter told Reuters that ONGC, Oil India and GAIL (India) — all state-controlled — were considering a joint bid for Cairn India, but said no banks had been mandated yet to arrange a bid. All three firms declined to comment late on Monday.

London-listed shares in Vedanta were down more than 5% on Tuesday and shares of its Mumbai-listed unit Sterlite Industries, fell as much as 4.9%.

Shares in Cairn India rose nearly 6% on Tuesday in an otherwise subdued Mumbai market on hopes of a counter-bid by state-run firms, as well as a new energy discovery in India announced late on Monday.

Government officials have expressed concern about Vedanta’s proposed purchase of Cairn India. India considers energy a strategic asset.

“We are very clear when it comes to petroleum and gas. These are national resources and that is what the Supreme Court has also upheld. But the concerned ministry and ONGC, which is a partner -- they have to take a view," Trade Minister Anand Sharma said on Tuesday.

Environment vs commerce

Vedanta is among several top corporations, including South Korea’s POSCO, whose Indian projects face delay as a proactive environment ministry tightens rules that often brings it in conflict with other government ministries pushing for rapid industrialisation.

Environment minister Jairam Ramesh said the decision did not amount to “blacklisting" Vedanta, signalling that the firm could seek to mine elsewhere provided it stuck to the rules.

“There has been serious violations of environment protection acts," Ramesh told reporters while rejecting Vedanta’s mining plans that could destroy heavily forested hills sacred to local tribal populations.

“There is no emotion, no politics, no prejudice ... I have taken the decision in a purely legal approach. That these laws are being violated."

Vedanta says the mining site is located in an uninhabited area so no one will be displaced, and that the project will help lift the poor district out of poverty.

A company spokesman declined to comment on Tuesday and said a formal statement would be issued later.

Refinery under cloud

The environment ministry decision comes after a government panel said last week giving permission to Vedanta would violate green guidelines and may have serious impact on security, referring to a worsening Maoist insurgency that feeds partly off the resentment of people displaced by large industrial projects.

In what could threaten Vedanta’s one-million-tonne alumina refinery plant in Orissa as well, Ramesh said the factory was sourcing bauxite from mines in an adjacent state that did not have valid environmental clearances.

“This matter is being examined separately," he said.

Ramesh wants to protect and expand India’s remaining forest land as part of a strategy to fight climate change, but that could mean giving up mining about a quarter of the country’s mineral reserves, needed to power Asia’s third-largest economy.